Cendant: Four for One

03/24/2006 12:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

Cendant, a long-troubled company is due to split into four parts. Not one to run from controversy, John Dessauer sees the uncertainty around the split up as an opportunity. Here, he explains why he considers this an "undervalued turnaround stock."

"Cendant (CD NYSE) is on schedule to split into four stocks this year. We will receive shares in the real estate unit in June. This unit includes Century 21, Coldwell Banker, and Sotheby's International Realty. Cendant tends to do better than most home sellers in these normal-to-tough real estate markets.

"In July, we will receive shares in the hospitality unit, including hotels and time shares, which are both booming. Occupancy rates are up, and revenue per room is rising. This unit includes Days Inn, Howard Johnson, Ramada Inn, Super 8, Travelodge, and others.

"Then, in October the travel distribution business will be spun out. This includes its online travel sites Orbitz and CheapTickets in the US and ebookers in Europe. That will leave us with the rental car and fleet business, which operates Avis and Budget, which has a history of solid growth and excellent returns.

"I see magic in this split up into four units. For starters, all the corporate overhead will be gone. Free from corporate overhead, each Cendant unit can evaluate new opportunities. Management of each unit will have a unique opportunity to create a board of directors, a management style, and a growth philosophy. Silverman said that he was surprised at how many well-qualified people are interested in taking high-level jobs at the four units. Opportunity attracts talent.

"The stock is down after disappointing fourth-quarter results caused many on Wall Street to downgrade the stock. But I am not alone in liking Cendant. Morningstar sees the stock worth $22 to $25, and Morgan Stanley says $23. I think both are conservative, but taking the lowest price, that would be a 35% gain from here.

"Overall, Wall Street is looking at the past and short-term challenges. A better focus is on the real value of each unit. I am sticking with my high expectation for the sum of the parts. A year from now, when we add up the value of the four stocks, I think the total will be closer to $30 than $20. Cendant is a Buy."

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